Unfor­tu­nate­ly, there are scams and dubi­ous projects in the cryp­to world that try to rob investors of their hard earned mon­ey. Such fraud­u­lent schemes not only lead to the loss of investor assets, they also dam­age the blockchain and cryp­toscene.

As Blockchain Island, Mal­ta enjoys an excel­lent rep­u­ta­tion as the loca­tion of choice for cryp­to com­pa­nies from all over the world. A gov­ern­ment open to tech­nol­o­gy and a world­wide pio­neer­ing legal frame­work have paved the way for this rep­u­ta­tion.

Unfor­tu­nate­ly, crim­i­nals and fraud­sters try to abuse Malta’s rep­u­ta­tion as Blockchain Island for their scams. This is why in the past, the Mal­ta Finan­cial Ser­vices Author­i­ty has already issued warn­ings to investors to beware of such scams. Espe­cial­ly con­cern­ing such projects that had fraud­u­lent­ly claimed to have been approved by the MFSA.

Now the MFSA wants to go one step fur­ther. For this rea­son, a new Guid­ance Note has been pub­lished in which it defines gen­er­al rules to pro­tect investors against cryp­tocur­ren­cy scams and to pro­vide more secu­ri­ty in cryp­to­space. This also shows how seri­ous­ly Malta’s gov­ern­ment and author­i­ties take it when it comes to pre­serv­ing Malta’s excel­lent rep­u­ta­tion as Blockchain Island.

First, the Guid­ance Note begins by defin­ing and dis­tin­guish­ing essen­tial terms. It should be not­ed that the terms vir­tu­al cur­ren­cies and cryp­to cur­ren­cies are very vague­ly defined. In gen­er­al, the term “cur­ren­cy” is rather out of place because it would not be sup­port­ed by any gov­ern­ment or cen­tral bank.

This is why the term Vir­tu­al Finan­cial Assets was cho­sen and clear­ly defined for the Vir­tu­al Finan­cial Assets Act passed on Novem­ber 1, 2018. It describes the legal frame­work for offer­ing VFAs to the pub­lic and relat­ed ser­vices from or in Mal­ta.

It is these licens­es that some scams claim to have already received. The aim is to gain the con­fi­dence of investors by pre­tend­ing to be approved by the reg­u­la­tor and to encour­age them to invest in a well-designed scam. That is why the MFSA clear­ly empha­sis­es on page 4 of the Guid­ance Note:

„as of to date, there are no whitepa­pers which have been reg­is­tered with the MFSA and no enti­ties licenced by the Author­i­ty under the VFAA act.”

Fake ICOs and oth­er com­mon types of cryp­tocur­ren­cy scams

It is par­tic­u­lar­ly notice­able that the MFSA has ded­i­cat­ed two whole para­graphs of the five-page text to warn­ing of fraud­u­lent ICOs. They were a com­mon type of Cryp­tocur­ren­cy Scams and were a great dan­ger espe­cial­ly for inex­pe­ri­enced investors.

In their efforts to deceive poten­tial investors and lull them into safe­ty, the fraud­sters take extreme­ly sub­tle and pro­fes­sion­al steps. This some­times also includes a per­son­al call from trained employ­ees who pre­tend to be pro­fes­sion­al con­sul­tants, who are sup­posed to con­vince the inter­est­ed par­ties per­son­al­ly and give them the nec­es­sary feel­ing of secu­ri­ty.

Crim­i­nals would offer ICOs with­out under­ly­ing val­ue and issue tokens that could only be used on their own plat­form. These plat­forms would often sud­den­ly close and the invest­ed mon­ey of the investors would dis­ap­pear.

In terms of crowd­fund­ing, there would also be sim­i­lar frauds, where­by inter­est­ed par­ties would be reeled in with spe­cial­ly reduced entry prices, bonus­es or oth­er incen­tives. It is promised that these will become active as soon as the coins are issued and the plat­form is start­ed. In addi­tion, the MFSA also warns of coun­ter­feit Exchange plat­forms or false Wal­let Apps. These are well faked cam­ou­flaged and are intend­ed to encour­age inter­est­ed par­ties to reg­is­ter and deposit funds. It is adver­tised with promis­es of high prof­its or the rapid com­pen­sa­tion of loss­es. As soon as high­er amounts are deposit­ed, access to the account is blocked and the investor’s mon­ey is lost.

Important advice from the MFSA

In addi­tion to the gen­er­al­ly under­stand­able advice that any invest­ment in cryp­to cur­ren­cies should be made with great cau­tion, the MFSA rec­om­mends not to invest in any project that that per­son does not under­stand.

In addi­tion, exten­sive research on com­pa­nies and the peo­ple behind them is rec­om­mend­ed. If a com­pa­ny claims to be autho­rised or reg­u­lat­ed by MFSA, the accu­ra­cy of that claim should be ver­i­fied by a check in MFSA’s Finan­cial Ser­vices Reg­is­ter. In case of doubt, the MFSA can be con­tact­ed by e-mail.

In the event that an investor has already been deceived in a scam and has already lost mon­ey, the MFSA advis­es to take two steps. Any activ­i­ty and any fur­ther trans­ac­tions on the plat­form should be stopped imme­di­ate­ly and in case of sus­pi­cion MFSA should be informed imme­di­ate­ly about the case and the oper­a­tor.

First VFA agents approved

Mean­while, there is also fur­ther news from Malta’s Finan­cial Super­vi­so­ry Author­i­ty regard­ing the VFA agents required for VFA offer­ings. To find out more about the role and respon­si­bil­i­ties of the VFA agent, please refer to our exten­sive blog post.

The Times of Mal­ta reports that the MFSA has issued ini­tial approvals for prospec­tive VFA agents. The first appli­ca­tions were received almost four months ago.

It should be not­ed, how­ev­er, as the arti­cle indi­cates, that these autho­ri­sa­tions have been grant­ed in prin­ci­ple, but that some details and par­tic­u­lars need to be clar­i­fied before the VFA agents can be offi­cial­ly accept­ed.

There was also an offi­cial state­ment from the MFSA by Chris Buttigieg, Head of Secu­ri­ties and Mar­ket Super­vi­sion. He sees the approval of the first VFA agents as an impor­tant mile­stone towards the offi­cial reg­u­la­tion of cryp­toas­sets. In addi­tion, he referred to the almost 18-month process, which had led from the ini­ti­a­tion of an offi­cial law on the reg­u­la­tion of cryp­to cur­ren­cies to the now total com­ple­tion of these frame­work con­di­tions.

Conclusion

The blockchain and cryp­to world remains young and dynam­ic. Nowhere are more appli­ca­tions and poten­tials devel­op­ing than on the pres­ti­gious Blockchain Island Mal­ta. How­ev­er, for this to remain so, reg­u­la­tors and leg­is­la­tors must rig­or­ous­ly crack down on crim­i­nals and fraud­sters who want to abuse this rep­u­ta­tion for their own crim­i­nal pur­pos­es.

With the pub­li­ca­tion of the Guid­ance Note, the MFSA under­lines its efforts to clean the mar­ket of bad play­ers and to pre­serve the con­fi­dence of investors so that com­pli­ant cryp­to com­pa­nies such as the numer­ous cryp­to exchanges based in Mal­ta and the immense poten­tial of rais­ing cap­i­tal by means of cryp­to cur­ren­cies — for exam­ple in the form of reg­u­lat­ed secu­ri­ty token offer­ings — are not harmed.

Start-ups and entre­pre­neurs from all over the world can be sure to find the best pos­si­ble loca­tion for their busi­ness on Blockchain Island and to meet with ener­getic sup­port and open dis­cus­sions with the gov­ern­ment and reg­u­la­tor.

Dr. jur. Jörg Wern­er, born 27 May 1971, attend­ed the law school of the Uni­ver­si­ty of Leipzig and passed his first state exam­i­na­tion in the State of Sax­ony in 1996. After suc­cess­ful­ly com­plet­ing his manda­to­ry legal intern­ship, he suc­cess­ful­ly passed the sec­ond state exam­i­na­tion of the State of Sax­ony-Anhalt in 1998 and was admit­ted to the bar and began to prac­tice as a Ger­man attor­ney (Recht­san­walt) before the court of Magde­burg the same year. He worked as an attor­ney at the Law Offices of Prof. Dr. Fre­und & Kol­le­gen until he formed the firm of Wrede & Wern­er. He was also admit­ted to prac­tice before the Supe­ri­or Court of Naum­burg. In 2001, he moved the firm’s offices to Cen­tral Berlin, where he was admit­ted to prac­tice before the Courts of Berlin. Dr. jur. Jörg Wern­er then com­plet­ed his doc­tor­al stud­ies at the Uni­ver­si­ty of Ham­burg and grad­u­at­ed as a Dok­tor der Rechtswis­senschaften (Doc­tor of Laws).